The interior of 'Gong Cha 2.0,' a specialty store concept by Gong Cha Korea [Gong Cha Korea]
The interior of 'Gong Cha 2.0,' a specialty store concept by Gong Cha Korea [Gong Cha Korea]

Gong Cha, the global milk tea franchise, is embroiled in a deepening dispute with its South Korean franchisees ahead of a planned sale of the business. Some franchisees filed a complaint with the Korea Fair Trade Commission earlier this year over alleged violations of franchise trade law, and have since filed a criminal complaint with police over alleged personal data breaches.

The Gong Cha Korea Franchisee Council filed a criminal complaint against Gong Cha Korea officials with police on July 9, alleging violations of the Personal Information Protection Act, according to industry sources Tuesday. The conflict escalated in February, when 70 franchisees reported the company to the Fair Trade Commission over alleged violations of franchise trade law. The council said it also plans to pursue litigation over differential franchise fees once the commission issues its findings.

According to the complaint filed with Hyehwa Police Station, the council's representative alleged that Gong Cha Korea employees shared a list of franchisees caught purchasing supplies from unauthorized sources in a KakaoTalk group chat without the store owners' consent, in violation of the Personal Information Protection Act. The list reportedly included store names, locations, dates of detection and items purchased — enough to identify individual owners. The council said some franchisees were effectively branded as violators, and that one affected owner ultimately closed their store in June as a result.

The 70 franchisees who filed the Fair Trade Commission complaint in February alleged that Gong Cha Korea violated the Act on Fair Transactions in Franchise Business by collecting differential franchise fees through a purchasing agency without properly disclosing this in its franchise disclosure documents. They also took issue with the company designating ordinary consumer goods unrelated to brand consistency as mandatory purchase items, effectively forcing franchisees to buy them.

Franchisees have also raised concerns about the allocation of promotional costs. Under their contracts, advertising and promotional expenses are to be split equally between the franchisor and franchisees — but in joint promotions where partner companies such as telecommunications firms cover part of the costs, franchisees said Gong Cha Korea counted the partners' contributions as part of its own share, distorting the actual split. They also said the company raised the supply prices of raw and subsidiary materials by an average of 12.7 percent between April 2025 and January this year without adequate consultation with franchisees.

"The company switched from Taiwanese raw materials to domestic products and still raised prices — all without consulting franchisees," a council representative said. "Promotional costs were contractually supposed to be split 50-50, but by counting partner contributions as the company's share, the actual burden ratio ended up different from what the contract stated." In response, a Gong Cha Korea official said the criminal complaint was "groundless" and that the company found it "difficult to comment" on the Fair Trade Commission filing.

Disputes over differential franchise fees and mandatory purchase items have been mounting across the franchise industry following a Supreme Court ruling earlier this year that declared Pizza Hut Korea's differential franchise fees unjust enrichment. In January, a Seoul High Court ruling was finalized in a suit brought by Pizza Hut franchisees seeking the return of differential fees paid between 2016 and 2022, with the court finding that fees collected without prior agreement constituted unjust enrichment. Pizza Hut Korea must return approximately 21.5 billion won ($14.5 million) in differential franchise fees to its store owners.

Last month, the Seoul High Court ruled that the Fair Trade Commission's corrective order and penalty against BR Korea — the operator of Dunkin' in South Korea — were lawful, after the company designated 38 items including trays and display cases as mandatory purchases. BR Korea dropped its appeal, accepting both the corrective order and a fine of 2.14 billion won.

A legal industry official said franchises are structured so that the franchisor can generate stable revenue through raw material supply and mandatory item designation, adding that brands acquired by private equity funds are particularly problematic as pressure mounts to boost profitability quickly in order to recoup the investment.


siuu@heraldcorp.com
jookapooka@heraldcorp.com